Chinese billionaire and CEO of mobile phone and home electronics maker Xiaomi has been tentatively linked to Bitmain in the recently released Paradise Papers. While the connection is not entirely concrete, the potential implications of a business magnate like Lei Jun being involved in Bitcoin could be significant.
Xiaomi and Lei Jun
Xiaomi is a Chinese company that became famous for making Android-powered iPhone copycats. The company’s name in Chinese uses the characters for small and rice.
Instead of using only low-quality materials and not focusing on user experience as many other iPhone copycat makers do, Xiaomi instead concentrated on user experience and building a brand. Xiaomi phones are now available across the globe, and often have a starting retail price of around $100.
The company also produces various other personal home electronics such as air purifiers, laptop computers, headphones for sale on the domestic Chinese market. The company is now venturing into shoes and clothing. The success of the company has given boss Lei Jun a fortune of nearly $7 billion.
Lei Jun and Bitmain
The connection between Lei Jun and Bitmain, the maker of the Antminer S9 and L3 miners, is established through a company that exists between the two parties. That company is Beijing Changtong Wuxian Consulting Company, which is linked to both Lei Jun and Bitmain’s Jihan Wu.
In China, it is quite common for successful and wealthy business people to stack their investments through a chain of holding companies. This is done for tax reasons, and can sometimes be done in order to obfuscate ownership. A search on the Chinese language internet for information about the holding company yielded no results, implying that this company does not directly do business out in the open.
Potential Impact on Bitcoin in China
At present, Bitcoin in China holds a legally tenuous position. The Chinese government does not recognize it as a legal currency, and stores and businesses are not allowed to accept it as a form of payment due to fears of tax avoidance and delegitimizing the Renminbi. The country banned all domestic cryptocurrency exchanges earlier this year, and then later banned all Chinese citizens and companies from participating in or offering an ICO.
Bitmain, however, is apparently receiving support from the government. It is a common and well-known practice for industries to sign under the table agreements with local governments to receive beneficial treatment in the form of reduced electricity costs or land prices in exchange for building a factory to improve the local economy.
Last month, images of a cease and desist letter from a local Sichuan provincial electrical station appeared on the internet. The letter declared Bitcoin mining ‘illegal,’ but the national government has not made such a declaration as of yet. Fears of Bitcoin mining becoming illegal have caused some China-based miners to consider relocating their operations to a different country.
However, if a billionaire and industry leader like Lei Jun were to be investing in and supporting Bitcoin mining in China, it could cause regulators to think twice before making any decisions regarding Bitcoin mining. At this point though, all we have is the tenuous link in the Paradise Papers which by itself is inconclusive.